Author, Drew Garcia, NALP Program Director, Rancho Mesa Insurance Services, Inc.
The Experience Modifier (i.e., experience MOD, MOD, XMOD, experience modification rating, EMR) weighs heavy on the calculation of your workers' compensation premium. With a MOD rating of 1.00 signifying unity (i.e., the average for your industry), any MOD above 1.00 is considered adverse. Thus, any MOD below 1.00 is considered better than average. Higher MODs will debit the premium, resulting in higher workers' compensation premiums, while lower MODs will credit the premium, resulting in lower workers' compensation premiums.
How do I decrease my MOD to lower my workers compensation premium?
A few factors can be addressed to reduce the workers' compensation premium. The most important is the primary threshold. Each individual employer has their own primary threshold that is determined by the class of business they operate and the amount of field payroll they accrue over a three year period. The primary threshold is the point at which any claim maximizes its negative impact on the MOD. You must be sensitive to this number because any open claim with paid amounts under the threshold, provides an opportunity to save points to the MOD. Once a claim exceeds paid amounts over your threshold, it no longer can negatively impact your MOD. However, you would still want to monitor and manage these claims to ensure your injured employee is being provided attentive care and to maintain knowledge of your loss experience.
Example
You’re a landscaping company and your primary threshold is $33,000. The most any claim can affect your MOD is $33,000 and the most points that any claim can add to your MOD is 13.
You have a claim open for $40,000 with paid amounts of $10,000 and reserved amounts of $30,000.
This claim will go into the calculation at $40,000 (Paid + Reserved) but because the total amount succeeds the primary threshold of $33,000, it will only show up on the rating sheet totaling $33,000 of primary loss and contribute 13 points to your MOD.
It would behoove you to analyze and monitor this open claim, because it has paid out amounts well below your primary threshold of $33,000.
If this same claim closes for a total paid amount of $22,000, the closed claim would go into your MOD at $22,000 with 8 points contributing to the MOD.
The difference between a $40,000 claim and a $22,000 claim is 5 points to your MOD, or, 5% to your premium!
Knowing your primary threshold is the most important piece of information when managing your XMOD. Fortunately, Rancho Mesa can help you manage your experience MOD by tracking your primary threshold and maintaining the other critical elements that go into establishing a sustainable low experience MOD.
For more information about lowering your experience MOD or a detailed analysis of your current MOD please reach out to Rancho Mesa.
Below is an example worksheet for Landscapers to determine the primary threshold.
| Annual Landscape Payroll | 2018 Primary Threshold | Max Points to MOD | Lowest MOD |
|---|---|---|---|
| $100,000 | $5,500 | 53 | .84 |
| $250,000 | $10,000 | 38 | .75 |
| $500,000 | $15,500 | 30 | .65 |
| $1,000,000 | $22,000 | 21 | .56 |
| $1,500,000 | $26,000 | 17 | .51 |
| $2,000,000 | $30,000 | 14 | .47 |
| $2,500,000 | $32,000 | 12 | .45 |
| $3,000,000 | $35,000 | 11 | .42 |
| $5,000,000 | $41,000 | 8 | .36 |
| $10,000,000 | $40,000 | 5 | .30 |